Rule 1.15 Preserving Identity of Funds and Property of a Client or Third Person

COMMENTS:

[1]A lawyer should hold property of others, in whatever form, with the care required of a professional fiduciary. Securities should be kept in a safe deposit box, except when some other form of safekeeping is warranted by special circumstances. All property that is the property of clients or third persons, including prospective clients, must be kept separate from the lawyer’s business and personal property and, if monies, in one or more trust accounts. Separate trust accounts may be warranted when administering estate monies or acting in similar fiduciary capacities. A lawyer should maintain on a current basis books and records in accordance with generally accepted accounting practice and must comply with any recordkeeping Rules established by law or court order. See, e.g., Hawai‘i Rules Governing Trust Accounting.

[2]While normally it is impermissible to commingle the lawyer’s own funds with client funds, paragraph (b) identifies several instances in which it is permissible to do so. See also Rule 11(c)(1)(A) of the Rules of the Supreme Court of the State of Hawai‘i. Accurate records must be kept regarding which part of the funds are the lawyer’s. See, e.g., Rule 4(c)(1) through (9) of the Hawai‘i Rules Governing Trust Accounting.

[3]Lawyers often receive funds from which the lawyer’s fee will be paid. The lawyer is not required to remit to the client funds that the lawyer reasonably believes represent fees earned and owed. However, a lawyer may not hold funds to coerce a client into accepting the lawyer’s contention. The disputed portion of the funds must be kept in a trust account. See Rule 4(a) of the Hawai‘i Rules Governing Trust Accounting. The lawyer should suggest means for prompt resolution of the dispute, such as arbitration. The undisputed portion of the funds shall be promptly distributed. See also Rule 1.5 of these Rules regarding a lawyer’s duties related to Fees.

[4]A mere debtor-creditor relationship is generally itself insufficient to establish a financial interest in funds or property within the meaning of paragraphs (d) and (e). Paragraphs (d) and (e) recognize, however, that third parties may have lawful entitlement to funds or other property in a lawyer’s custody, such as a client’s creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party entitlements against wrongful interference by the client. In such cases, the lawyer must refuse to surrender the funds or property to the client until the dispute is resolved. A lawyer should not unilaterally assume to arbitrate a dispute between a client and the third party, but, when there are substantial grounds for dispute as to the person entitled to the funds, the lawyer may file an action to have a court resolve the dispute.

[5]The obligations of a lawyer under this Rule are independent of those arising from activity other than rendering legal services. For example, a lawyer who serves only as an escrow agent is governed by the applicable law relating to fiduciaries even though the lawyer does not render legal services in the transaction and is not governed by this Rule.

[6]The Lawyers’ Fund for Client Protection provides a means through the collective efforts of the Hawai‘i bar to reimburse persons who have lost money or property as a result of a lawyer’s dishonest conduct. Lawyer participation is mandatory. See Rules and Regulations Concerning the Lawyers’ Fund for Client Protection of the Supreme Court of the State of Hawai‘i (aka Lawyers’ Fund Rules and Regulations).